ABI Continues Historic Contraction

Demand for design services in April saw its steepest decline on record, according to a new report from the American Institute of Architects (AIA). AIA’s Architecture Billings Index score of 29.5 for April reflects a decrease in design services provided by U.S. architecture firms (any number below 50 indicates a decrease in billings). During April, both the new project inquiries and design contracts scores also declined significantly, posting scores of 28.4 and 27.6 respectively.

“With the dramatic deceleration that we have seen in the economy since mid-March, it’s not surprising that businesses and households are waiting for signs of stability before proceeding with new facilities,” says AIA chief economist Kermit Baker. “Once business activity resumes, demand for design services should pick up fairly quickly. Unfortunately, the precipitous drop in demand for design services will have lasting consequences for some firms.”

Dodge Momentum Index Trips on COVID-19 in April

The Dodge Momentum Index moved 6% lower in April to 135.9 (the year 2000 = 100) from the revised March reading of 144.5. Both components of the Momentum Index pulled back during the month—the commercial component fell 7.6%, while the institutional component dropped 3.2%.

COVID-19 had a significant negative impact on the economy in April, touching virtually all sectors—including construction. Planning activity clearly downshifted, although that downshift has not been fully realized in the published index since the Momentum Index is a three-month moving average. This sets the stage for an even weaker reading when the May data is released in June.

In April, six projects, each with a value of $100 million or more, entered planning.

The Momentum Index, issued by Dodge Data & Analytics, is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.

Construction Starts Show Sharp Contraction in April

Total construction starts declined 25% from March to April to a seasonally adjusted annual rate of $572.2 billion as COVID-19 and an economic recession hit the construction sector. In April, nonresidential building starts fell 37% from March, while residential dropped 25%.

On a year-to-date basis through four months of 2020, total construction starts were 8% lower than the same period in 2019. Nonresidential building starts were off 14%. Residential starts, meanwhile, were up 2% on a year-to-date basis. Looking at starts from a slightly different perspective, total construction starts were 1% higher in the 12 months ending in April 2020 than they were for the same period ending in April 2019. Nonresidential building starts, however, were down 3%.

From March to April nonresidential building starts crashed 37% to a seasonally adjusted annual rate of $170.2 billion—the lowest monthly reading since early 2014. April’s decline was much sharper than any single month-to-month drop seen during the Great Recession. Commercial starts fell 47%, manufacturing starts dropped 56%, while institutional construction starts lost 26%.

As a result of the April data, nonresidential building starts were down 14% year-to-date. Commercial starts were down 18% year-to-date, while manufacturing starts were 34% lower and institutional starts dropped 6%.

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